Monsters of Rock: Green steel in the hour of chaos and UBS goes bigger on iron ore and copper

POSCO subsidiary lodges EPA bid to build massive green iron plant in Pilbara
South Korean conglomerate signed agreement last year to study hot briquetted iron play with Gina Rinehart’s Hancock Prospecting
UBS ramps up long-term iron ore and copper forecasts in positive predictions for BHP, Rio and FMG

For the disruptor status of all the green metals players multiplying like the children of El-ahrairah (it’s a Watership Down reference … cause we’re too highbrow to just say ‘like rabbits’) they sure love generic names that have little of the ‘will become a verb’ ring of the Ubers, Tinders and Twitters of the Silicon Valley bull run.

Australia’s emerging but unheralded crop of green steel hopefuls are bearing little more imagination than the lithium explorers they are following into WA’s ‘critical minerals’ marketplace.

The didactically named Port Hedland Green Steel Pty Ltd is the latest offending party, one more in the line of ‘what it says on the tin’ players making a bid to fire up WA’s currently vacant local scene.

We’ve checked it out through ASIC and it looks to be a subsidiary of South Korea’s POSCO, a producer of around 35Mtpa of crude steel, varying from year to year and a major backer of the State’s resources scene.

It’s got a 30% stake in the Ravensthorpe nickel mine, stakes in Pilbara iron ore deposits including 12.5% of Gina Rinehart’s Roy Hill mine and a downstream processing JV to develop a 43,000tpa lithium hydroxide plant back home using spodumene from Pilbara Minerals’ (ASX:PLS) Pilgangoora operation near Port Hedland.

Today’s EPA proposal by Port Hedland Green Steel Pty Ltd is not wholly surprising, given POSCO and Rinehart’s Hancock Prospecting announced plans to invest in a feasibility study on the 2Mtpa hot briquetted iron plant in March last year.

The Port Hedland Green Steel project would be located at the Boodarie Strategic Industrial Area 10km south-west of the Pilbara city, the largest iron ore export hub in the world where major players BHP (ASX:BHP), Roy Hill, Hancock, Fortescue (ASX:FMG) and MinRes (ASX:MIN) all wave off millions and millions of tonnes of red dirt a year for China and greater Asia.

The HBI plant would bring Australia and its dig and ship mining sector further down the value chain, sending off a product its exponents – already planning two HBI mini-mills to open in South Korea in 2027 – say will help the sector with its extraordinary carbon footprint.

How would it do that?

POSCO expects to produce around 3.5Mtpa of iron ore pellets from magnetite concentrate at the Port Hedland plant, converting into 2Mtpa of HBI and 700,000tpa of pellets for sale to low carbon steelmaking facilities overseas.

It would, presumably, require the development of new resources by Hancock or a deal with some other party. Hancock’s Roy Hill and Atlas Iron operations produce lower grade hematite, not a product typically suited to low emissions steelmaking and largely consumed in conventional blast furnaces.

But it is known to be studying the potential to produce magnetite iron ore – similar in style to FMG’s new Iron Bridge mine – at projects in the Pilbara and Yilgarn.

The HBI project would take 2.5 years to construct with a planned start date of January 1 2025 and an extraordinary 99-year operating life.

Over that time, POSCO sees emissions come down as Net Zero 2050 timelines approach and hydrogen reduction technology develops to displace natural gas as the reductant in the production process, something they say is at least 5-10 years away.

“HBI production based on 100% hydrogen technology is not being considered as the required technology is yet to be developed on a cost effective basis,” the referral notes.

“Will be considered for incorporation into the Proposal in the future when it is developed and practicable (expected to be 5-10 years away).”

Production is expected to commence with 1% hydrogen blended with natural gas and carbon capture and storage technology with an emissions footprint of 1.288Mt of CO2 equivalent in its first year (1.6Mt on an unmitigated basis).

By the fifth year of operations, the plant would reduce its emissions 27% on its unmitigated emissions level, 46% by year 10, 63% by year 15, 72% by year 20 and 77% to 350,000tpa by 2050.

It comes the same year the Mineral Research Institute of WA compiled a study for the WA Government on a potential multi-billion dollar 4.8Mtpa HBI plant, which would reduce overall emissions in the steelmaking process (around 8% of global CO2 emissions) by around 60%, but seriously increase the amount generated on our own shores.

Another investment bank gets iron ore and copper

UBS is digging iron ore and copper, ramping up long term price forecasts in predictions that would be extremely positive for big dogs of the ASX Rio Tinto and BHP.

With higher costs and prolonged strength in the old world commodity, prices for iron ore are expected to stay in their US$100-130/t range over the coming six months.

But longer term UBS has puffed up its assumption from US$65/t to US$85/t, US$10 above consensus and a major deal for iron ore miners if that is the case, given they generate strong margins with C1 costs in the US$20/t range.

UBS’s price targets for BHP, Rio Tinto and FMG have been lifted in the 20-25% range from $36 to $43 for BHP, $95 to $115 for RIO and $15.20 to $20.30 for FMG.

Meanwhile despite weakness in copper prices, UBS foresees a tight market in 2024 with a deficit emerging from 2025 as energy transition drivers lift demand by over 3%.

With incentive pricing on new projects lifting, UBS has upped its long-term Cu forecast from US$7700/t or US$3.50/lb to US$8800/t or US$4/lb.

The materials sector was up 0.36% today. Gold stocks dominated as bullion prices surged on safe haven sheltering from investors after a deadly Hamas attack in Israel which led to a declaration of war by Prime Minister Benjamin Netanyahu.

Aeris Resources (ASX:AIS) was the strongest gainer, up over 12% after the under pressure copper and gold miner said it met production guidance for the September quarter from its Tritton, Cracow and Mt Colin mines.

It placed the Jaguar zinc and copper mine WA on care and maintenance during the quarter, with feasibility studies on its restart plans there to begin in the middle of this month.